The AARP Retirement Survival Guide: How to Make Smart Financial Decisions in Good Times and Bad

Your 401k Account - An Annual Checkup
By Dee Marie

You probably perform a lot of tasks annually. Some of these tasks protect you, your family, or even your assets. These chores include visiting your doctor for an annual physical or cleaning the gutters on your house. Well, next time you're making your list of 'must-do's' be certain to include a checkup for your 401(k) plan on your list.

Your annual examination of your 401(k) plan should cover a few different aspects of your investment. You can check each one quickly by exploring your most recent account statement.

First, you should evaluate your contribution amount. Changes in your financial position over the past year could warrant an increase or decrease in the amount you put into your 401(k). Receiving a raise at work is a great occasion to increase your retirement contribution. Changing your contribution amount isn't what matters here; it's taking the time to decide if you should make a change.

Next, you should take a look at your investment choices. A mutual fund that was outperforming its peers at this time last year may have tanked over the last twelve months. Although it's important to remember that you don't want to change your investment allocations too often, a regular examination of the funds you've chosen isn't excessive.

Finally, you should check on the way your investment options within your 401(k) are spread. Investing in four mutual funds, you might decide to put twenty-five percent of your account into each fund. However, if one fund grows more aggressively than another, at the end of the year you may have forty percent in one fund, ten percent in another, and twenty-five percent in each of the remaining two funds. Since financial experts sometimes advise that retirement accounts should be spread among many different types of investment, you may want to rebalance your account back to your original allocations of twenty-five percent in each fund.

Making changes to your 401(k) plan isn't something that should be taken lightly. Speak with your financial advisor if you aren't certain about the direction you should be taking. Regardless of the actions you decide to take, you'll feel better about your retirement plan after taking care of its annual maintenance.

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